Settlement Agreements: The benefits for employers
Posted on 8th January 2021 at 18:54
At DSM Legal, we can help with legal advice about a wide range of employment law issues for both employers and employees. One question we often get asked about is how settlement agreements can assist both parties in moving forward when someone leaves a company. Here’s our quick guide:
What is a Settlement Agreement?
It’s basically a legal agreement between an employer and employee when they part company. It’s often used in situations such as redundancy where there are certain obligations on either side that need to be respected. It could include, for example, giving the employee money in return for certain conditions such as agreeing to a confidentiality clause or not bringing legal action against the employer.
Settlement agreements are designed to protect and benefit both sides and, once signed, are legally binding.
The Benefits of Settlement Agreements
The main benefit for employers is that the terms of an employee leaving are set in a legal contract. It essentially protects the company from having to go to a tribunal if, for instance, the employee claims for wrongful or unfair dismissal at a later date.
A benefit for employees is that the first £30,000.00 of a termination payment is tax free.
Settlement agreements often contain something called a confidentiality clause – for example, stating that neither the employer or the employee will say anything bad about each other. This can be useful in a case where there have been poor relationships between the two. It also ensures that the two parties go their separate ways and any bad blood is essentially neutralised.
Without a settlement agreement, employers may well be taken to a tribunal if there is a case for unfair dismissal. Of course, this can be a costly and time consuming experience for both sides and can also have a reputational price for the business. Coming to an agreement, which usually involves some form of pay off, is a lot better for both sides.
The settlement agreement works to maintain confidentiality that can also benefit both sides. That can include is there is sensitive information involved and ensures, for example, that an employee won’t be passing on customer information to third parties.
At its heart, the settlement agreement is all about protecting rights. Putting together an agreement that is legally binding normally takes the input of a qualified solicitor who is versed in employment law. Getting it wrong can mean that your company is compromised, even if the employee signed the agreement. This is the main reason why, when companies make redundancies, they will normally fund the employee to get the document checked over by a suitable, independent legal representative.
At DSM Legal, we’ve worked with both employers in drafting settlement agreements and employees who need legal advice before signing a settlement agreement. We’re experienced at putting the right content together, including properly worded confidentiality agreements, while ensuring that everything is underpinned by the law and the right language.
We have many years’ experience in advising employees on settlement agreements.
If you’re an employer, having a legal team onside that understands all aspects of employment law can make a big difference. If you’d like to find out more, then contact our friendly team today.
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